Employment Law

No Class Action Waivers on PAGA Claims: With Cert Denial, California’s Iskanian Decision Stands

Why it matters: It’s official: The U.S. Supreme Court has declined to review the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles. Last June, the state’s highest court upheld the general enforceability of class waivers in mandatory employment arbitration agreements while carving out an exemption for employees to bring representative actions under the California Labor Code’s Private Attorneys General Act (PAGA). The employer asked the justices to review the decision, arguing in its cert petition that the PAGA exemption failed to “fully implement” Supreme Court precedent on arbitration. Without comment, the Court rejected the petition. While it remains to be seen what impact the cert denial will have, it is likely that employers will experience an increase in PAGA claims. However, since Iskanian was handed down, at least three federal courts have chosen not to follow the opinion and continued to enforce waivers of PAGA representative actions. Given the federal courts’ apparent disdain for Iskanian, employers may be able to remove cases to federal court and then seek to enforce an arbitration agreement in class actions that include a PAGA claim.

Detailed discussion: Arshavir Iskanian, a former driver for CLS Transportation, signed an agreement providing that “any and all claims” arising out of his employment were to be submitted to binding arbitration before a neutral arbitrator. Among other features, the arbitration agreement also included a class and representative action waiver.

Iskanian filed a class action complaint against CLS alleging that the company failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, or pay final wages in a timely manner. A trial court justice granted CLS’s motion to compel arbitration based on the agreement.

While Iskanian’s appeal was pending, the California Supreme Court issued a decision in Gentry v. Superior Court, 42 Cal. 4th 443 (2007), holding that class action waivers in employment arbitration agreements are invalid under certain circumstances. In light of the ruling, CLS voluntarily withdrew its motion and the parties proceeded to litigate, with the trial court certifying a class over CLS’s objection.

The U.S. Supreme Court then issued its 2011 decision in AT&T Mobility v. Concepcion (131 S. Ct. 1740), which expressly invalidated a California Supreme Court decision restricting consumer class action waivers in arbitration agreements in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005). Relying on Concepcion, CLS renewed its motion to compel arbitration. The trial court ordered Iskanian into individual arbitration and dismissed the class claims with prejudice. He appealed.

The California Supreme Court addressed three primary issues: the validity of Iskanian’s class waiver and the viability of Gentry in the wake of Concepcion; whether CLS waived its right to compel arbitration by withdrawing its motion in light of Gentry; and the intersection of the Federal Arbitration Act (FAA) and California’s PAGA.

First, the court found that Gentry was abrogated by Concepcion and then determined that Iskanian failed to meet the heavy burden of proof to argue that CLS waived its right to arbitration, particularly in light of the procedural history of the case.

But on the final point of contention, the court sided with the plaintiff, emphasizing the intent of PAGA: to deputize employees as private attorneys general because of the government’s shortage of resources to pursue enforcement of the Labor Code. Because an agreement by employees to waive their right to bring a PAGA action would “disable one of the primary mechanisms for enforcing the Labor Code,” the court said it would be invalid.

“The PAGA was clearly established for a public reason, and agreements requiring the waiver of PAGA rights would harm the state’s interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations,” the court wrote. “We conclude that where, as here, an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.”

Such an outcome would not frustrate the FAA as “a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship,” the court said. “It is a dispute between an employer and the state, which alleges directly or through its agents – either the Labor and Workforce Development Agency or aggrieved employees – that the employer has violated the Labor Code.”

CLS filed a petition for certiorari with the U.S. Supreme Court challenging the holding on the issue of PAGA representative actions. While the court denied cert, multiple federal courts in California have taken matters into their own hands, declining to follow the Iskanian decision on the basis that it treats arbitration “disfavorably” in contravention of the FAA and Supreme Court precedent. The California Supreme Court also displayed its prejudice against arbitration by inconsistently applying its rationale, a federal court judge ruled in Langston v. 20/20 Companies.

“While concluding that an employee’s agreement not to bring a representative PAGA action is contrary to public policy if it takes place before any dispute arises, the court nevertheless explained that, after a labor dispute arises, an employee is free to choose not to bring a representative PAGA claim. Moreover, after a dispute arises, an employee may agree to ‘resolve a representative PAGA claim through arbitration,’ ” Judge Jesus G. Bernal wrote. “Thus, although the court asserts that the basis for holding representative PAGA claim waivers unconscionable is that an employee cannot waive a right that properly belongs to the government, the court nevertheless acknowledges that an employee may actually sometimes waive the government’s right to bring a PAGA claim. That inconsistency illuminates the fact that, it is not an individual’s ability to waive the government’s right that drives the court’s rule, but rather the court’s general disfavor for pre-existing agreements to arbitrate such claims individually.”

The judge granted the employer’s motion to compel individual arbitration.

To read the opinion in Iskanian v. CLS Transportation, click here.

To read the decision in Langston v. 20/20 Companies, click here.

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President Calls For up to Six Weeks of Paid Sick Leave, Other Leave Law Changes

Why it matters: President Barack Obama has turned his attention to employment issues recently, urging Congress to pass legislation mandating paid sick leave and issuing a memorandum instructing federal agencies to advance up to six weeks of paid leave to workers to care for a new child or family member, among other examples. He then reiterated his support during his State of the Union address, saying a paid sick leave law providing seven days of paid sick leave each year is “the right thing to do.” During the State of the Union, the President also called for a wage equality measure, a raise in the federal minimum wage, and the promotion of laws that “strengthen rather than weaken unions, and give American workers a voice.” Facing a Republican-controlled Congress makes passage of the laws an uphill battle for the President, but employers should keep an eye on possible legislation.

Detailed discussion: In a new Presidential Memorandum, “Modernizing Federal Leave Policies for Childbirth, Adoption and Foster Care Leave to Recruit and Retain Talent and Improve Productivity,” President Obama focused his attention on employment issues such as parental leave and paid sick leave. Citing studies about the positive impact of maternity and paternity leave, he said that both men and women “need time to care for their families and should have access to workplace flexibilities that help them succeed at work and at home.”

The United States lags behind “almost every other country” in providing paid parental leave to its federal workforce, the President added. “My Administration fully supports efforts to align the Federal Government with the parental leave policies of leading private sector companies and other industrialized countries, and will continue to take administrative steps to modernize leave policies to better support Federal employees,” he wrote.

He then directed agencies to offer 240 hours of advanced sick leave “at the request of an employee and in appropriate circumstances, in connection with the birth or adoption of a child or for other sick leave eligible uses,” to be provided irrespective of existing leave balances. Similarly, agencies should offer the maximum amount of advance annual leave permitted by law for foster care placement or bonding with a healthy newborn or newly adopted child.

Less than a week later, the President addressed both houses of Congress and returned to the issue of paid sick leave. Noting that 43 million workers in the country do not have paid sick leave, he instructed lawmakers, “Send me a bill that gives every worker in America the opportunity to earn seven days of paid sick leave.”

Several jurisdictions have already enacted paid sick leave measures, including California, Connecticut, Massachusetts, and Washington, D.C., as well as multiple cities in both California and New Jersey and Seattle.

In his remarks, the President also called for paid maternity leave, equal pay legislation, overtime, and, in a repeat of last year’s State of the Union, an increase in the federal minimum wage.

“Of course, nothing helps families make ends meet like higher wages,” President Obama said. “That’s why this Congress still needs to pass a law that makes sure a woman is paid the same as a man for doing the same work. It’s 2015. It’s time. We still need to make sure employees get the overtime they’ve earned. And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full-time and support a family on less than $15,000 a year, try it. If not, vote to give millions of the hardest-working people in America a raise.”

To read the Presidential Memorandum, click here.

To read the text of the State of the Union address, click here.

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New Jersey Adopts Worker-Friendly Test for Independent Contractor Determination

Why it matters: Setting a low bar for workers seeking to be declared an employee instead of an independent contractor, the New Jersey Supreme Court decided the “ABC” test governs the issue for purposes of resolving a wage payment or wage and hour claim under state law. Three employees sued Sleepy’s LLC, alleging that they were miscategorized as independent contractors instead of employees. A federal court judge found the plaintiffs to be independent contractors. The workers appealed to the Third U.S. Circuit Court of Appeals, which certified the question of which test should be applied when classifying individuals to the New Jersey Supreme Court. Answering the question, the state’s highest court said the ABC test should be applied where a worker is considered an employee unless an employer can satisfy three criteria: that it lacked the ability to exercise control over the worker; the worker performed work outside the usual course of business for the employer; and the worker has a profession that will persist despite the termination. As the test defaults to a finding of employment unless all three criteria are met, employers in the state face a serious challenge to establish a worker as an independent contractor and should consider reviewing their contracts to see if current working arrangements satisfy the test.

Detailed discussion: A trio of mattress delivery workers for Sleepy’s sued the company, claiming that they were miscategorized as independent contractors to their financial detriment and in violation of state wage laws.

On cross-motions for summary judgment, a federal district court judge in New Jersey determined that the plaintiffs were independent contractors, relying on a test used to define employees under the Employee Retirement Income Security Act (ERISA). When the plaintiffs appealed to the Third Circuit, the federal appellate panel certified a question to the New Jersey Supreme Court:

“Under New Jersey law, which test should a court apply to determine a plaintiff’s employment status for purposes of the New Jersey Wage Payment Law (WPL) … and the New Jersey Wage and Hour Law (WHL)?”

The parties – and multiple amicus briefs – proffered several tests for the court to consider. The plaintiffs proposed three possibilities: the hybrid “relative nature of the work” test set forth in a prior New Jersey Supreme Court decision; the “ABC” test followed by the state’s Department of Labor to interpret and apply the definitions in the WHL to resolve WHL and WPL claims; or the “economic realities” test under the Fair Labor Standards Act (FLSA).

Alternatively, Sleepy’s argued for a two-tiered analysis beginning with the plaintiff establishing that the employer is contractually obligated to pay wages to him or her. If successful, a court should then determine whether that contract rendered the plaintiff an employee or independent contractor in accordance with the “control” test derived from the Restatement (Second) of Agency, the employer said.

Amici like the International Brotherhood of Teamsters urged the court to use the “relative nature of the work” standard while the Legal Services of New Jersey advocated for a “totality of the circumstances” test incorporating control and economic dependence, among other factors. The state’s DOL, meanwhile, said the court should adopt the “ABC” test.

After considering the panoply of options, the New Jersey Supreme Court agreed with the DOL and the plaintiffs that the “ABC” test was the best fit.

By regulation, the WHL sets forth the criteria to distinguish between an employee and an independent contractor. Seeking to follow the intent of the legislature and align the two state laws at issue – the WHL and the WPL – the court said the same test should therefore be used for both statutes.

“The ‘ABC’ test presumes an individual is an employee unless the employer can make certain showings regarding the individual employed,” the court explained, including: “(A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and (B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and (C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.”

The failure to satisfy any one of the three criteria results in an “employment” classification, the court added. Despite recognizing the breadth of the test, the unanimous court noted that the WHL and WPL are remedial statutes and should therefore be liberally construed and have the same purpose. “Statutes addressing similar concerns should resolve similar issues, such as the employment status of those seeking the protection of one or both statutes, by the same standard,” the court said. “[T]he ‘ABC’ test fosters the provision of greater income security for workers, which is the express purpose of both the WPL and WHL.”

“Examining first the plain language of the WHL and WPL and then the regulations implementing both statutory schemes, we determine that the same test or standard should be employed to determine the nature of an employment relationship under both statutes,” the court wrote. “We also conclude that no good reason has been presented to depart from the standard adopted by the DOL to guide employment status determinations or to disregard the long-standing practice of treating both statutory schemes in tandem.”

The court also noted that although not bound by the agency’s determination of law, it needed to afford some deference to the DOL’s interpretation of the applicable test as the agency charged with applying and enforcing it.

To read the opinion in Hargrove v. Sleepy’s LLC, click here.

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A New Boss Is Not a Reasonable Accommodation, Rules California Court

Why it matters: Granting summary judgment to an employer in a Fair Employment and Housing Act (FEHA) suit claiming disability discrimination, failure to accommodate, and failure to engage in the interactive process, a California federal court judge wrote that a new boss is not a reasonable accommodation. An employee alleged that her new boss treated her in “a negative and devaluing manner,” including inappropriate sexual comments, triggering a recurrence of mental health problems. While on medical leave, she told human resources she needed to have a new supervisor. The interactive process was unsuccessful and the plaintiff filed suit. The court tossed the discrimination claim, finding that the plaintiff was unable to prove she was otherwise qualified to perform the essential functions of her job because of her stated inability to work with her supervisor. Further, her failure to accommodate claim failed because her requested accommodation – a new supervisor – was unreasonable as a matter of law, the court said.

Detailed discussion: Marlene Alsup worked for U.S. Bancorp for several years as a regional manager before rising to the level of vice president and “performed her duties in a highly satisfactory manner.” In September 2012, however, Alsup was assigned a new boss. From the beginning, Alsup said he treated her “in a negative and devaluing manner” and made comments she found offensive and of an unwelcome sexual nature.

The new boss caused her history of mental illness to resurface, and she began to suffer panic attacks not only at work but also during off hours, as well as experiencing sleeping problems, inability to concentrate, and a feeling of hypervigilance.

A December 2013 write-up from her boss triggered serious problems, and her therapist placed her on a medical leave of absence. The doctor also informed the employer that Alsup had a diagnosis of Bipolar II and should be accommodated with “a switch in supervisors.”

Over the next few months, a human resources employee repeatedly reached out to Alsup. In multiple conversations and e-mails, Alsup said she could only work with a transfer away from the boss or a new supervisor in her existing position. U.S. Bancorp denied her requests.

Alsup filed suit under FEHA, claiming that the employer discriminated against her on the basis of her disability, failed to accommodate her disability, and failed to engage in the interactive process.

U.S. District Court Judge Kimberly J. Mueller disagreed.

“[I]n order to make out a prima facie case for disability discrimination under the FEHA, plaintiff must allege she could perform the essential duties of the job with or without reasonable accommodation,” the court said. “Because the plaintiff’s claimed disability stems from her inability to get along with her supervisor, and the only effect it had on her job was to render her unable to work with that supervisor, she has not and cannot allege she could perform the duties of her job with or without reasonable accommodations.”

Turning to Alsup’s failure to accommodate claim, Judge Mueller held that the request for a new boss was unreasonable as a matter of law. Lacking California precedent on the issue, the court looked outside the state and found “the overwhelming majority of courts have held a plaintiff may not couch a request for transfer as an accommodation for her disability, and many specifically hold that a transfer is an unreasonable accommodation as a matter of law,” citing decisions from the Third U.S. Circuit Court of Appeals and federal courts in the District of Columbia, Florida, Georgia, Illinois, and Pennsylvania.

Even without the case law, the court said the plaintiff failed to state a claim. “Plaintiff’s work environment could not have been modified or adjusted in a manner that would have enabled the plaintiff to perform the functions of her job,” the judge wrote. “Because the plaintiff here alleges the only possible accommodation would have been her transfer to a different supervisor, and has made no allegations that her workplace could have been modified or adjusted such that she could perform the essential functions of her job, she does not state a claim for failure to accommodate.”

Finally, Judge Mueller dismissed the plaintiff’s failure to engage in the interactive process claim. An HR employee repeatedly attempted to engage the plaintiff in the process, the court said, and tried to explore options for accommodations like applying for vacant positions with the bank. Reviewing the facts in the light most favorable to the plaintiff, “it may be an issue of fact whether the plaintiff refused to engage with defendant to determine a reasonable accommodation; however, defendant fulfilled its duty to engage in a timely, good faith interactive process with plaintiff for the purposes of determining effective reasonable accommodations,” the court concluded.

The judge also rejected Alsup’s implications that due to her mental illness, the employer should have engaged in the interactive process with someone other than her.

While the court dismissed the suit in its entirety, it did so with leave to amend.

To read the order in Alsup v. U.S. Bancorp, click here.

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Working During FMLA Leave Can Violate Statute

Why it matters: Where are the boundaries for contact with an employee on leave pursuant to the Family and Medical Leave Act (FMLA)? Acknowledging that no bright-line rule exists regarding employee contact during FMLA leave, a federal court judge in Texas ruled that an employee who alleged she was required to work while on leave sufficiently alleged a violation of the statute. The employee claimed that during her leave, her supervisor required her to perform 20 to 40 hours of work. When she returned to work, she resigned and filed a suit alleging FMLA interference, among other claims. Denying the employer’s motion for summary judgment, the court attempted to draw a line. “[R]easonable contact limited to inquiries about the location of files or passing along institutional or status knowledge will not interfere with an employee’s [FMLA] rights; however, asking or requiring an employee to perform work while on leave can constitute interference,” the court wrote. Employers should use care when contacting employees on FMLA leave.

A manager in the Ethics & Compliance Department at Genon Energy Systems, Joan Smith-Schrenk was charged with investigating, monitoring, and reporting potential regulatory or ethical violations. The department was busy and Smith-Schrenk worked 50 to 60 hours per week.

Although Smith-Schrenk’s work performance was generally satisfactory, her supervisor expressed concern regarding her communication skills. During one review, she provided the employee with a development plan.

Smith-Schrenk began missing work in order to take care of her mother as well as deal with her own health issues. A cyst on her neck began enlarging and an inconclusive biopsy led her to schedule surgery. Her supervisor recommended the surgeon for the procedure and the two often discussed Smith-Schrenk’s mother’s medical issues.

According to Smith-Schrenk, however, her supervisor was “immediately hostile” when she requested intermittent FMLA leave to care for her mother and increased her workload. Although all of the employee’s requests were granted, her absences caused disruption in the department. Her supervisor also noted that her communication problems were not improving and drafted a coaching plan.

Before she could present the plan, however, Smith-Schrenk took full-time FMLA leave. During her leave, she said her supervisor continued to call and e-mail her, requiring her to perform work assignments, including updating compliance cases, revising a safety review project, and dropping off files at the office – a total of 20 to 40 hours.

When Smith-Schrenk returned to work, she heard that a position similar to hers had been posted for employment. She was also presented with the previously prepared coaching plan. Citing the hostile work environment, Smith-Schrenk resigned and filed a lawsuit alleging violations of the FMLA as well as the Americans with Disabilities Act (ADA).

Reviewing the facts on the employer’s motion for summary judgment, the court said the plaintiff had not “set forth the type of repeated or extreme conduct that would constitute a hostile work environment.” For one thing, the busy department had legitimate reasons for posting a new position given the undisputed heavy workload. Even Smith-Schrenk’s subjective beliefs about her supervisor’s actions were outweighed by the facts that all her requests for leave were granted and the supervisor provided a referral for her surgeon.

The plaintiff also failed to offer sufficient evidence of a constructive discharge, U.S. District Court Judge Gray H. Miller wrote. The coaching plan was drafted prior to her FMLA leave and the job posting was based on the department’s needs.

“A reasonable employee would not have felt compelled to resign amidst these conditions,” the court said, and “receiving a performance plan upon her return does not amount to harassing conduct.”

Smith-Schrenk’s FMLA interference claim, however, survived. Although Genon argued that any work performed by the plaintiff was de minimis and done voluntarily, the court said that “asking or requiring an employee to work while on leave can cross the line into interference.”

Reviewing case law on the issue, the court found the general consensus to be that “reasonable contact limited to inquiries about the location of files or passing along institutional or status knowledge will not interfere with an employee’s [FMLA] rights; however, asking or requiring an employee to perform work while on leave can constitute interference.”

For example, courts have found that taking occasional calls about a job while on leave is a “professional courtesy” that does not interfere with FMLA rights; nor does contacting an employee on leave about issues like her decision to accept another position within the company, the execution of documents related to the decision, and ongoing salary negotiations. On the other end of the spectrum, mandating that the plaintiff respond to regular phone calls may constitute FMLA interference, as could checking in with the plaintiff on the sales leads he was expected to generate during his leave.

“By requesting an employee work during FMLA leave, an employer not only discourages the employee from using such leave, but precludes her from using such leave during that period of time,” Judge Miller said. “In sum, the employer has failed to ‘respect’ the employee’s FMLA ‘entitlements.’ ”

While Genon disputed that the plaintiff was asked to work or deliver files to the office, “this only creates a genuine issue of material fact precluding summary judgment on plaintiff’s FMLA interference claim,” the court said.

Therefore, the court dismissed the plaintiff’s suit except for the FMLA interference claim.

To read the opinion in Smith-Schrenk v. Genon Energy Systems, click here.

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